1. Simulation Debrief December 7 th 2010

2. Executive Team President: Clay Bridges VP Sales: Miu Goto VP Marketing: Casie Huffman VP Production: Robb Harper VP Finance: Wes Knight

3. Industry Environment Industry comprised of 6 major players 6.8 billion dollars in sales 161,214 units sold

4. Porter’s Five Forces Industry Competition Threat of New Entrants Bargaining Power of Buyers Threat of Substitutes Bargaining Power of Suppliers

5. Atyfi Motors Overall cost leadership Average features on all vehicle classes Sold their vehicles on the high end of the scale Invested on the high end of advertising Invested very little on research and development Low profit margins on all vehicle classes Operational Cost Reduction & Gross Profit %: Economy – $600, 31.83% Sedan – $600, 29.21% Truck – $1500, 24.61% Luxury - $600, 27.12%

6. Avery Motors Overall cost leadership Low end features on all vehicle classes Invested very little in advertising Invested very little on research and development Low profit margins on all vehicle classes Operational Cost Reduction & Gross Profit %: Economy – $300, 30.58% Sedan – $300, 30.59% Truck – $300, 31.98% Luxury - $300, 35.37%

7. Central Motors Differentiation by technology; higher priced Average to low end on features offered Average number of vehicles sold to the market Invested a moderate to high amount on advertising Above average R&D investment; 3 rd highest in the industry Better than average profit margins; 2nd only to Broncho Operational Cost Reduction & Gross Profit %: Economy – $5100, 45.77% Sedan – $5400, 41.6% Truck – $5400, 40.34% Luxury - $5400, 48.23%

8. Komiyama Automobiles Differentiation by high price Average on features Average volume of vehicles sold to market Invested a moderate to high amount on advertising Invested very little on research and development Low profit margins on all vehicle classes Operational Cost Reduction & Gross Profit %: Economy – $2700, 37.83% Sedan – $2700, 36.83% Truck – $2700, 36.45% Luxury - $2700, 39.89%

9. Valur Differentiation by features offered Overall market share leader Average volume of vehicles sold to market Invested on the high end of advertising Above average R&D investment; 2nd only to Broncho Better than average profit margins; 3 rd best in the industry Operational Cost Reduction & Gross Profit %: Economy – $6600, 50.98% Sedan – $6600, 37.84% Truck – $4200, 32.52% Luxury - $6600, 42.25%

10. Industry Environment Opportunities High growth which leads to opportunity for increase in market share Price differentiation

11. Industry Environment Threats Changing customer expectations Technology breakthrough of competitors

12. Internal Environment

13. Corporate Level Strategy Differentiation

14. Strategy Heavy R&D investment to drive down costs Keep customer expectations in mind for each car and grow each attribute year after year for every car Sell cars at high end of price range to maximize profits

15. Strategy 40% minimum gross margin profit in each vehicle class Invest in new plants only when economically feasible compared to sales Strong advertising – close to the top expectation range or over

16. Strategy Long term goal Create the highest margins in every class investing heavily in cost reduction Net profits

17. Sales VP Sales Miu Goto

18. Sales Sales Strategy Improve each characteristic in every vehicle class Fuel Economy Engine Power Safety Features Luxury Features Reliability Increase prices each year Sell every unit

19. Characteristics

27. Sales - Growth Sales grew at consistent rates annually Economy – 25% Sedan – 30% Truck – 20% Luxury – 35%

28. Marketing VP Marketing Casie Huffman

29. Marketing

30. Marketing - Price High end of customer range Increased every year With an exception for economy class in year 2

31. Marketing - Product

32. Marketing - Place

33. Marketing - Promotion Advertising Slogan

34. Marketing - Promotion Advertising Strategy Spend on the high end of scale Spend as much or more than competitors

35. Marketing Promotion Target Market Average income increase 3.5% yearly

36. Marketing Promotion Advertising Media

37. Marketing Promotion Advertising Media Year 6

38. Production VP Production Robb Harper

39. Production Strategy Sales forecast & production Holding inventory Cost of not selling

40. Production Strategy Build to make money Determine if profits on new capacity allowed for cost of building new plant Avoid unnecessary capacity

41. Production Strategy Year 3 Market – 3,075 units of luxury Current capacity – 3,000 Cost to build 75 units Direct Cost - $1,767,375 New plant cost - $10,000,000 Sales for 75 units - $3,675,000 Profit for 75 units – ($8,092,375) Decided to not spend $10,000,000 to build a plant Break even was 394 units

42. Inventory Held Produce what will sell, do not hold inventory Sold every unit produced in years 2-6 Year 1 sales shortage Economy 139 units $1.6m in cost Truck 156 units $3.3m in cost

43. Cost of Not Selling Units Retain cash to cover units not sold

44. Get more aggressive? Scanned the external environment Year 2: Broncho, Atyfi Year 3: Broncho, Avery, Valur Year 4: Broncho, Komiyama, Valur Year 5: Broncho, Komiyama, Atyfi, Central Year 6: Broncho, Atyfi

45. Unit Production

46. New Plants In 6 years we spent $270 million on new plants

47. Research & Development Strategy Development areas Cost of improvements Benefit of improvements

48. R&D Strategy Heavy emphasis on R&D investing Competitive advantage Reduce costs Labor cost Material cost Increase gross profit %

49. Areas of R&D New Technologies Production Robotics Equipment Enhancements Efficiency Software

50. Research & Development $320,000,000 total spending Year 6 – Operational Cost Reduction Per Unit

51. Benefit of Development Increase gross profits Be the industry leader in net profits Year 4Year 5Year 6 Net Profits

52. Benefit of Development

53. Finance VP Finance Wes Knight

54. Financials Sales Dollars - $1,199,467,750 Cost of Goods Sold - $538,358,725 Operating Profits EBIT - $408,395,678 Net Profits - $285,843,059

55. Financials Gross Profit margins End of year 1 – 40% End of year 6 – 55% Total Assets Beginning - $75 million Ending - $655 million EPS Beginning of game - $1.94 Game end - $19.44 Stock Price Beginning $11.68 Ending $118.57

56. Financials Outstanding Shares $50 million in outstanding shares beginning of game $95 million in outstanding shares after year 3, issued stock to finance growth in plants and R&D during years 1,2, and 3 $25 million in outstanding shares at game end, profits used to buy back shares in years 4, 5, and 6

57. Financials Short term debt $5 million at beginning of game $15 million ending year 3 – used to finance growth in plants and R&D $1.8 million at game end – used profits to pay off debt

58. Financials Long term debt $7 million at beginning of game $21 million ending year 3 – used to finance growth in plants and R&D $2.6 million at game end – used profits to pay off debt

59. Strengths & Weaknesses

60. Internal Environment Strengths

61. Internal Environment Weaknesses Cash management – we had deficits in two years Too aggressive in sales forecast in first year – 5% over market prediction except in Economy

62. Strategic Alternatives

63. Paying dividends Diversification into different markets within the automobile industry SUV’s Hybrid Vehicles Motorcycles

64. Strategic Alternatives Backwards integration to reduce manufacturing costs Engine manufacturing Tire and wheel products Electronics Defusing new technologies First mover advantage for new auto features Establish brand image as first mover in the auto industry